#Budget2019: Government not taking on #Eskom’s debt but will provide funding, place it under curatorship

South Africa’s Finance Minister Tito Mboweni, wearing a
fiery red tie and full of energy was at pains during a press conference with media
, ahead of his maiden Budget, to say that Treasury is not giving troubled-state
owned entity Eskom a bailout or taking on its debt but rather funding it to the
tune of R69bn over the next three years or R23bn a year. This is to financially
support it during its reconfiguration.

In the State of the Nation Address, President Cyril
Ramaphosa announced that Eskom will be reconfigured into three independent
components: generation, transmission and distribution.

Mboweni warned that the fiscal support to Eskom is
conditional.

In his Budget speech he states that “pouring money directly
into Eskom in its current form is like pouring water into a sieve.

“I want to make it clear: the national government is not
taking on Eskom’s debt. Eskom took on the debt. It must ultimately repay it. We
are setting aside R23 billion a year to financially support Eskom during its
reconfiguration.

“The fiscal support is conditional on an independent Chief
Reorganisation Officer (CRO) being jointly appointed by the Ministers of
Finance and Public Enterprises with the explicit mandate of delivering on the
recommendations of the Presidential Task Team. We will make announcements in this
regard in the coming weeks.”

The minister described this process as essentially placing,
what many see as the biggest risk to South Africa under curatorship.

“We are not just loaning Eskom money, we want to look after
every rand and cent we give them” he said.

Staunchly the minister warned other state owned enterprises
seeking funding from Treasury that the days of bailouts are over. If they want
funding we will appoint a CRO and essentially place them under curatorship.
This will make them reluctant to come to Treasury, he said.

Labouring the point in his speech he said “We must tighten
the guarantee rules. If a state-owned enterprise applies for a government
guarantee for operational purposes, it will be required to appoint a CRO in
concurrence with the National Treasury and its bondholders. The CRO will
undertake a full operational and financial review. When banks need state
support, we appoint a curator. When provincial and municipal finances are in
disarray, government can take over the running of the administration. These
rules should also apply to all SOEs.

“Cabinet is considering a proposal to end the issuing of
guarantees for operational purposes. Expiration dates on guarantees will also
be strictly enforced. As the President announced, strategic equity partners
will be found where possible. “

The minister in his speech also said the time has come for the
country to ask “do we still need these enterprises? If we do, can we manage
them better? If we don’t need them, what should we do?”

Asked why he posed this question and what his answer would
be, he said he wanted to agitate a conversation.

“We need to move with the times. We need to establish what
our priorities are. Should R10bn be put in a loss-making airline or the taxi
and railway industry?

“Who are we serving by the decisions we take?”

He added that we need a forum to discuss these questions, in
Eskom’s case with the trade unions, bondholders, management and the relevant
ministers.

“The status quo is not working, we have to cross the Rubicon
on the other side of Rome.”